Merged Public Sector Banks In India A Compilation Of Bank Mergers

Banks Merger in India

In a significant move to restructure and redefine India's banking landscape, the government of India executed a series of mergers in 2021, consolidating 10 Public Sector Banks (PSUs) into 4 larger entities. This endeavour was aimed to streamline operations, strengthen the banking sector, and promote financial stability across the nation.

What are Bank Mergers?

A bank merger is essentially an agreement between two banks, one being the acquiring bank and the other being the merged bank. In this process, the two banks combine their assets, liabilities, and operations to form a single, larger entity. This restructuring initiative was particularly significant in the context of Public Sector Banks in India.

As of today, India has a total of 12 Public Sector Banks, including major players like Bank of Baroda and the State Bank of India. The mergers led to the creation of four anchor banks, further consolidating the public sector banking space in the country.

List of Merged Banks

The mergers in the Indian banking sector resulted in ten Public Sector Banks becoming four, with anchor banks playing a pivotal role in the process. It's worth noting that some region-centric banks, such as Indian Overseas Bank, UCO Bank, Punjab and Sind Bank, and Bank of Maharashtra, continue to remain independent entities. Here is a breakdown of the merged public sector banks:

 

Advantages of Public Sector Bank Mergers

Bank mergers carry various advantages for the banking sector and the economy as a whole. Here are some of the key merits associated with these mergers:

   1. Rise in Financial Inclusion

The consolidation of banks leads to an increased outreach, making banking services more accessible to underserved and remote areas. This contributes to the government's goal of enhancing financial inclusion and reaching unbanked populations.

   2. Operational Costs Reduction

Merging banks can achieve economies of scale, leading to reduced operational costs. This, in turn, allows them to offer more competitive products and services while maintaining profitability.

   3. Improved Technical Expertise

With the merger of banks, there is a consolidation of technical know-how and best practices. This enhances the efficiency and effectiveness of banking operations, reducing the likelihood of inefficiencies that were more prevalent in smaller branches.

   4. Expanded Scope of Banking Activities

Larger, merged banks have a broader network, enabling them to provide banking services across a more extensive geographical area. This expanded reach benefits customers who can access services throughout the entire nation.

   5. Enhanced Product Range

Merged banks can offer a wider range of financial products and services to their customers. This variety of products provides customers with more choices and allows them to select offerings that align with their financial goals.

   6. Improved Administrative Efficiency

The merger process often involves streamlining and reducing redundant positions and designations. This leads to cost savings in administrative expenses.

   7. Improved Service Delivery

As a result of operational efficiencies, merged banks can deliver better services to their customers, such as faster loan approvals, improved customer support, and enhanced digital banking experiences.

   8. Increased Capital Base

Mergers provide banks with a larger capital base, allowing them to offer larger loan amounts to customers. This is particularly beneficial for businesses and individuals seeking substantial financing.

   9. Diversified Product Offerings

Merged banks typically offer a broader spectrum of financial products, including mutual funds, insurance products, loans, and various types of deposits. This diversity allows customers to explore and choose products that best meet their financial needs.

   10. Reduced Dependence on Government Recapitalization

Bank mergers can lead to enhanced financial health, reducing the need for government capital injections. This, in turn, benefits the government by freeing up funds for other developmental projects.

   11. Technological Advancements

Merged banks often invest in modernizing and upgrading their technological infrastructure, leading to improved digital banking services and more efficient banking processes.

Disadvantages of Bank Mergers

While bank mergers offer several advantages, they also come with challenges and drawbacks. Here are some of the key demerits associated with bank mergers:

   1. Impact on Decentralization

Many public sector banks are region-centric, and mergers may affect the goal of decentralization. This can lead to concerns about local banking services and decision-making.

   2. Governance and Bad Loans

Governance issues and the burden of bad loans are common challenges that may persist in larger banks post-merger. Addressing these issues is essential for the success of merged entities.

   3. Global Economic Impact

Global economic crises can have a more substantial impact on larger banks. Smaller banks, on the other hand, may have more flexibility to navigate challenging economic conditions.

   4. Employee Challenges

After a merger, banking staff may face challenges related to changes in working procedures and internal guidelines. These changes can impact job roles, responsibilities, and work culture.

Impact of Bank Mergers on Customers

Bank mergers can bring about various changes for customers, although these are often managed to minimize disruption. Here are some of the impacts on customers:

   1. Transfer of Loans

After a merger, loans from the merged bank are typically transferred to the acquiring bank. This may lead to changes in terms and conditions, including interest rates and repayment schedules.

   2. Account Details Update

Customers may need to update essential account details such as account numbers, IFSC codes, BSR codes, and customer IDs. These updates are necessary to align with the new banking structure.

   3. New Passbook and Cheque Book

In some cases, customers may be issued new passbooks and cheque books that reflect the merged entity. This is part of the transition to the new banking system.

   4. Possible Branch Closures

Bank mergers can lead to the consolidation of branches. As a result, some older branches may be closed, and customers may need to visit different branches for their banking needs.

   5. Emotional Impact

Bank mergers can have an emotional impact on customers, especially those who have longstanding relationships with their banks. Adjusting to changes in the bank's new identity and service offerings can be challenging.

Issues and Challenges for Banks Due to Mergers

Banks encounter various challenges during and after mergers, which can affect their operations and long-term viability. Here are some of the challenges faced by banks due to mergers:

   1. Governance Issues: Merged banks often need to address governance-related challenges, as different departments and structures must be integrated seamlessly.

   2. Data Handling: Both the acquiring and merging banks must handle data properly during the transition. Ensuring data security and consistency is crucial to the success of the merger.

   3. Capital Requirements: Capital infusion may be required to support the merged entity's operations and expansion. Adequate capital is essential for maintaining financial stability. 

   4. Managerial Issues: Mergers can lead to managerial challenges, including differences in leadership and decision-making processes. These issues must be resolved for the merged entity to function effectively.

FAQs on Merged Public Sector Banks in India

1. What happens to my bank account number and customer ID after my bank gets merged with another bank?

After a merger, you can continue to use the same customer ID, account number, IFSC code, debit card, chequebooks, and other banking essentials. However, there's a possibility that new account numbers and customer IDs may be issued in the future.

2. How many public sector banks are there after the merger?

After the merger, there are 12 public sector banks in India. Prior to the merger, there were a total of 27 public sector banks.

3. What happens to standing instructions for utility payments after the merger of my bank with another bank?

A3. There will be no disruptions in services related to standing instructions for utility payments. Customers won't need to resubmit mandates, and the services will continue seamlessly.

4. What is branch rationalization?

Branch rationalization refers to the process of assessing and optimizing branch locations, often resulting in the closure of branches that are in close proximity to each other.

5. What happens to the home branch of my bank that just got merged with another bank?

After the merger, you will have access to a greater number of ATMs and branch offices for your banking needs. However, branch rationalization may lead to the closure of some branches.

6. I am a registered SBI Pay customer from an Associate bank with VPA created with @SBI handle. Will this handle change after the merger?

No, there will be no change in your VPA (Virtual Payment Address) handle.

7. What is the goal of bank mergers in India?

The primary goals of bank mergers in India were to strengthen the nation's economy, enhance profitability, reduce non-performing assets (NPAs), improve efficiency, and expand the reach of the branch network.